Petrol, diesel prices likely to spurt next week

The only matter of speculation is by how much prices will go up. Reports suggest that the the government is planning to increase the state-set price of diesel by Rs3-Rs5 per litre while oil companies will raise petrol prices by a similar amount. Cooking gas (LPG) and kerosene prices too are slated to go up.

This would be the first increase in diesel prices since 26 June last year. The state-run oil marketing firms are suffering huge losses because of a spike in global crude prices. Crude prices have risen from about $75 per barrel then to more than $120 a barrel since last June.

According to reports, senior executives of state-run oil companies said they would meet soon to raise petrol prices for the seventh time since June last year. While oil firms are free to raise petrol prices, they have not increased rates since January as the government informally told them to wait until assembly elections were over.

While petrol prices have ostensibly been ''freed'' by the government since June, they in fact continue to be under government control, as the three oil marketing companies – which control over 95 per cent of the domestic fuel retail business - are themselves state-owned and cannot take decisions without government approval.

''We would do it (increase rate) at the earliest possible…we live in an environment (comprising the people and the government). If we take certain action, the environment is going to turn against us,'' IOC chairman R S Butola said.

The Reserve Bank of India in its policy review has called for an immediate hike in petrol and diesel prices even if it adds to the inflationary pressure and moderates economic growth as artificial capping of prices will increase the government's fiscal deficit.

Releasing the monetary policy statement for 2011-12 on Tuesday, RBI governor D Subbarao said the failure to increase retail prices would increase the government's fiscal deficit.

On the EGoM's agenda are ways to mitigate the over Rs180,000-crore revenue loss state-owned oil firms have projected in 2011-12 from selling diesel, domestic LPG and kerosene at current rates. Losses on petrol are not included in the under-recovery figures for 2011-12 as it is a decontrolled commodity.